INTL FCStone 2013 Annual Report Download - page 58

INTLFCSTONEINC.Form10K 37
PART II
ITEM7Management’s Discussion and Analysis of Financial Condition and Results ofOperations
and the accounts of Tradewire Securities, as well as higher costs
related to trade system conversions. Occupancy and equipment
rental increased $1.0 million, primarily related to international
oce space rental and related costs. Depreciation and amortization
increased $0.8 million, primarily due to the increase in depreciation
of additional information technology infrastructure and software
placed into service during scal 2013 and scal 2012.
Bad debts and impairments decreased $0.7 million year-over-
year. During scal 2013, bad debts and impairments were
$0.8 million and included $0.1 million of impairment charges
on intangible assets and $0.7 million of bad debt expense, net
of recoveries of $0.1 million. During scal 2012, bad debts and
impairments were $1.5 million and included $0.8 million of
impairment charges on intangible assets, previously determined
to have indenite lives, and $0.7 million of bad debt expense,
net of recoveries of $0.1 million.
Other expense increased $1.6 million, primarily related to
an increase in non-trading technology costs and a regulatory
settlement of $1.5 million incurred during scal 2013 - See
Note 12 to the Consolidated Financial Statements.
Provision for Taxes: e eective income tax rate on a U.S.
GAAP basis was 15%, in scal 2013, compared to 18% in
scal 2012. e eective income tax rate can vary from period
to period depending on, among other factors, the geographic
and business mix of our earnings. In scal 2013, we released a
portion of the valuation allowance for state net operating loss
carryforwards and changed our state tax rate, resulting in a
decrease in the eective tax rate. Generally, when the percentage
of pretax earnings generated from the U.S. decreases, our eective
income tax rate decreases.
Year Ended September 30, 2012 Compared to
Year Ended September 30, 2011
Compensation and Other Expenses: Compensation and other
expenses increased by 15% from $252.8 million in scal 2011
to $290.4 million in scal 2012.
Compensation and Benefits: Total compensation and benets
expense increased 15% from $176.6 million to $202.4 million
in scal 2012 compared to scal 2011. Total compensation
and benets were 66% of net operating revenues and 65% of
adjusted net operating revenues in scal 2012 compared to 57%
of net operating revenues and 59% of adjusted net operating
revenues in scal 2011. e variable portion of compensation
and benets decreased 3% from $100.8 million in scal 2011
to $97.9 million in scal 2012, as an 8% increase in operating
revenues compared to the prior year, was more than oset by
a decrease in administrative and executive variable incentive
compensation. Administrative and executive bonuses were
$14.1 million, compared with $15.7 million in scal 2011.
e xed portion of compensation and benets increased 38%
from $75.8 million in scal 2011 to $104.5 million in scal 2012,
primarily as a result of the acquisition of Ambrian Commodities
Limited, the LME metals team and TRX Futures Limited, as
well as an expansion of investment banking and administrative
departments, including information technology development,
credit and risk, compliance and accounting departments. Share-
based compensation includes stock option and restricted stock
expense. Stock option expense was $1.4 million in scal 2012,
compared with $0.6 million in scal 2011. Restricted stock
expense includes a proportion of the current year’s, as well as
the previous years’, bonuses allocated to restricted stock awards,
as the awards are deferred and expensed ratably over their three
year vesting period. Restricted stock expense was $4.5 million
in scal 2012, compared with $1.7 million in scal 2011. e
number of employees increased 19%, from 904 at the end of
scal2011 to 1,074 at the end of scal 2012, primarily as a result
of acquisitions of the LME metals team and TRX Futures Limited.
Other Non-Compensation Expenses: Other non-compensation
expenses increased by 15% from $76.2 million in scal 2011
to $88.0 million in scal 2012. Communication and data
services expenses increased $7.1 million, primarily due to
increasesin market information expenses and trading software
costs following the acquisitions of Hudson Capital Energy,
Ambrian Commodities Limited, the LME metals team and TRX
Futures Limited, as well as expansion of our soft commodities
and foreign exchange activities. Occupancy and equipment rental
increased $2.1 million, primarily as a result of the relocation
of our London oces, in conjunction with the acquisitions of
Ambrian Commodities Limited, the LME metals team and
TRX Futures Limited. Depreciation and amortization increased
$2.5 million, primarily due to the increase in depreciation of
additional information technology software and infrastructureand
leasehold improvements placed into service during scal2012
and 2011.
Bad debts and impairments decreased $4.7 million year over year.
During 2012, bad debts and impairments were $1.5 million and
included $0.8 million of impairment charges on intangible assets
previously determined to have indenite lives and $0.7 million of
bad debt expense, net of recoveries of $0.1 million. During2011,
bad debts and impairments were $6.2 million and included
an impairment loss of $1.7 million related to the fair value
adjustment of its investment in debentures for the single asset
owning company of Suriwongse Hotel located in Chiang Mai,
ailand, originally issued in August 2008, in the Securities
segment. Additionally, during scal 2011, the Company recorded
bad debt expense, net of recoveries, of $4.5 million.
Other expense increased $0.2 million year-over-year, and
included $2.0 million in expense during scal 2012 related
to the revaluation of contingent liabilities related to potential
additional consideration to be paid for the acquisitions of the
RMI Companies, the Hanley Companies and Hencorp Futures,
compared to $3.2 million during scal 2011. We also accrued
additional contingent consideration during scal 2012 and
2011 of $0.4 million and $1.6 million, respectively, related to
FCStone, LLC’s pre-merger acquisitions of Downes& O’Neill,
LLC and Globecot, Inc. Also, as a result of previous acquisitions